Increases Valuation Rates Announced

On 1 December 2021, the Federal Board of Revenue (FBR) announced the new property valuation rate in Pakistan of immovable properties, which were increased up to 100 to 600 percent upward. The valuation rates were not just increased in 14 cities like last time but in 40 major cities of Pakistan. These rates are different depending on the position and commercial/residential areas in the cities.

Moreover, this time the on-road and off-road rates of the same sized properties are also different, where on-road properties of the same size have a higher rate. This means that the advance tax that you had to pay when buying a property has increased greatly.

Effect of the Increased Valuation Rates on Real Estate

After the valuation rates were increased, the real estate market was in chaos. Transfer of plots was withstood due to the increased rates. The real estate business slowed down, and people stopped transactions as they were waiting for revised valuation rates. The property transaction decreased up to 90%.

For example, the advanced tax on property transaction under the old regime was for 1 Kanal plot in DHA of filer (1%) was around 1lakh and for non-filer (2%) 2.11lakhs. However, the rates increased too much in the newer announced valuation rate. There is also a new on-road, and off-road category added. So now, for the same size plot, the on-road filer (1%) is almost 9lakhs, and for non-filer (2%), it is doubled. Moreover, the off-road cost is around seven lakhs for filers (1%) and double for non-filer (2%).

Protest by the Real Estate Community

There is seven times the increase; however, there is a 12-time increase in some other plots. Because of this weird increase in the rates, the real estate community united and protested so that the government would revise down the rates.

Revised Notification by the FBR

In regards to the protests, FBR released a notification in which they have written that the new valuation rates will be reviewed. It also says that the Chief commissioner inland revenues have to make Valuation Review Committees (VCRs) where theories, issues, and relevant problems will be discussed. The last date to convey all of the issues and desired rates is till 15 December, which should be submitted by 15 January.

Until 15 January, old rates will be implied. After which, the new rates will be implied. Over the passage of time, the tax will inevitably be increased so that it is close to the market value because there is a massive gap between this tax compared to market value rates.

Conclusion

Many people have very negative views and opinions because of the increased valuation rates in 2021-2022. It might have a temporary decrease in the business; however, this does not mean that people will stop buying houses and plots forever. This does not mean that construction work will stop permanently. Real estate is regulated throughout the world. Hence, it does not collapse when the tax rate increases, and tax rate increases in all countries.

Now all Real estate businesses need to be registered property dealers to the FBR, which will help in decreasing money laundering. It is also going to support and give confidence to the investors and help them avoid fraud.